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EA CEO says stock dip "makes absolutely no sense"

EA's stock recently hit a 52-week low of $11.28 per share, but CEO John Riccitiello has no idea why the company is being hit so hard in the market this year. In an interview with CNBC's Julia Boorstin, Riccitiello explained that investors are confused about the industry's current transitionary period.

"After many years of stellar growth, we more recently got into a place where I think investors are having a hard time understanding where growth in the industry is coming from. We're at a point where the new console generation has not yet been fully announced, so people don't know what's coming there," said Riccitiello.

"And they're unclear about ongoing growth in the Facebook platform for gaming and mobile. So we're sort of in a transition period from an investor perspective."

"It makes absolutely no sense to me, but fair and unfair doesn't have anything to do with it when it comes to a stock. There is a perception among investors that the game industry is tough to invest in right now. They're looking for the winners and they're looking for the catalysts. I think those will take place over the next twelve months," he added.

When asked about flagging NPD numbers, Riccitiello said it had little to do with the company's current business.

"Investors and the analysts that cover the industry have a history of focusing on NPD. Just five years ago, people said that the PC business was in a radical state of decline because NPD said it was down 10 percent, 20 percent, 30 percent, year-in and year-out. The fastest growing platform for video games today is the PC, but it's growing through subscription, through microtransactions, through download," he explained.

"Publishers like us are able to grow because we're transforming the way we deliver products to the consumer. What's making it hard for investors to see through how to invest the game industry is they're reading NPD, which is just the disc. We've got 40 percent growth on our digital business. Investors are looking at things like NPD, and they can't square that with their understanding of the business. Aggressive investors right now have a great opportunity."

Riccitiello also disagreed with the idea that it's easy to jump into mobile and social spaces. He agrees that user acquisition is the most difficult part of existing in the space.

EA brings brands like FIFA to hungry mobile audiences.

"I would argue that that's one of the worst thoughts I've seen in the gaming industry. Yes, it costs less to produce a game for a social platform or mobile. It costs vastly more to find an audience," he said.

"When you've got 10,000 applications going up on a mobile network, standing out in that crowd is incredibly hard. If you don't have the network power of an EA or Zynga on social, it's virtually impossible for a consumer to find the product. Ditto with mobile. What we have is the benefit of brands like Madden, FIFA, Battlefield, Medal of Honor, and Need for Speed."

The full fifteen-minute video interview with Riciitiello can be found over at CNBC.

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9 Comments

If you look at profitability then the EA stock price has been far too high for far too long.
There have been many far better places to invest your money.

A stock price is supposedly the capitalised value of the discounted cash flow of future earnings. On this basis EA shares are still not a buy. The company needs to learn from Activision and Zynga how to focus on customers to earn money. Till then they are just a bloated industry whale.

As the industry moves to digital and the economic benefits of corporate scale are removed there is a strong case for breaking EA up, back to its constituent studios. This would probably give the best shareholder value.

Agree with Bruce: EA currently has a p/e of 53, vs 15 for Activision-Blizzard, 10 for Konami, ... Undervalued, really?
When I joined EA in 2008, share price was $50+, and they were already down from their peak of $60+ then. While there are of course external factors, the fact is that JR oversaw a period of massive shareholder value destruction in the last 4-5 years. This whole 'the market is wrong and we are right and life is so unfair' story becomes a bit annoying...

While agree with both of you that the value of EA stock is already higher than it should be due to a horrible profit track record, his general point is still valid. Investors don't follow the industry close enough to know some of the intricacies that can fluctuate sales.

...All of which makes me wonder how a company stock would do if only people who were using the product(s) were trading it.

This sort of speculation reminds me of the baseball card/sports memorabilia and comics boom in the 90's when lots of big money investors swarmed in and snapped up anything they thought would be worth something and we saw all sorts of awful comics and cards in all sorts of limited editions flood retailers simply so they could be bought and sold later. This sort of thing always ends with someone sitting in a room with a bunch of worthless pieces of paper, but hey - the ride is fun while it lasts...

Is there a agreement between all of the top publishers executives to play dumb to the fact of how much indebted they have become. I just read Activision's boss whining about how they are being treated, then backpedaling by Ubisofts supremo... no not the lifetime one, the other one! Obviously it will take some serious executive cutting before they get the message.

Lets hope 2013 is the year of pink slips at the big publishers executive board! Just ask Bruce what happened in the board rooms before the 1984 crash!!

The point about PC being dead 5 years ago is sort of interesting in retrospect. It wasn't just the fact that there was a shift from packaged to digital, it was also the fact that 2004/2005 had high number of mega-blockbuster PC-only titles: WoW, Half-life 2, Sims 2, and Battlefield 2 pushed 10M+ lifetime. Then in the next tier you had a bunch of games that pushed 2 to 6M: Doom 3, Age of Empires 3, Warhammer Dawn of War, Far Cry, Civ4, Guild Wars.

In 2006 to 2008, there was almost nothing comparable released. There was Crysis and Orangebox (TF2/Portal). There are obviously other factors: Vista probably wasn't a good thing for the PC game market, PC games were getting squeezed out of retail in favor of console, new PC sales were down, etc.

So it's not hard to see why the market was down, it's just that at face value certain reports/analysis aren't very useful without the color. If HL2 released in 2007 vs. 2004, I have a hard time believing it would have sold less because of the "dying market".

As far as investors "not understanding", that is something that obviously cuts both ways and in the end it always sorts itself eventually. I mean LNKD has had a P/E of 600+, and that P/E likely represents growth greater than the company's own forecasts. Still investors feel good about the company long-term now, but the next couple years that will sort itself out with regard to the company's value.

He has a fair point about the games media's seeming inability to recognize the same basic 'end of cycle falloff' from the past. It's happened a couple times, consoles get older and PC becomes more popular, then new consoles hit and PC's start to drop off.

This is not the same thing at all. Consoles may be dropping off but, there is no indication that the next cycle will be a boom. It's more likely that mobile and tablet gaming will take off, leaving the consoles in a kind of middle ground limbo.